Kim Jong Il’s Trickle-Up Economics Starve North Korea’s Poor

After the Great Confiscation was announced, the Daily NK had supposed that the poorest or North Korea’s poor wouldn’t be hurt as badly as those with more savings to lose. To its credit, the paper is now correcting that supposition, having grasped a concept that probably isn’t taught in North Korean schools — supply-side economics:

The source said, “Due to the bill exchange, business went bad and the authorities are cracking down on private trade in food, so problems for the poor have been getting serious.[… T]he circumstances for the poor are now growing much more serious, because new money did not circulate well in the beginning and the market continues to wither as the authorities have decided to strongly regulate food trading. [Daily NK]

The poor, who had ceased to depend on the state years ago, had come to rely on what they could sell to the rising middle class. This rising black market had helped restore some degree of food security for many North Koreans after years of famine. The heart of that system was the rise of private markets, or jangmadang, where people traded in food and imported goods. For North Koreans who transported and traded in these goods, it was possible to accumulate savings, generate steady income, and provide for their families.

This was North Korea’s “peoples’ economy.” It was only a distant echo of the “palace economy” that sustained Kim Jong Il, his ruling class, army, and lifestyle, largely sustained by weapons sales, proliferation, smuggling, money laundering, foreign aid, and a few showpiece foreign investments. The ordinary people who sustained their existence by trading in the jangmadang saw little profit from any of that. But it’s just possible that international sanctions against the palace economy caused North Korea’s rice-eaters to conclude that the easiest way to make up for the effect of sanctions was to rob the corn-eaters.

In late November, North Korea effectively confiscated the savings of millions of its citizens by announcing that it would reissue its currency. All of the old currency would become worthless. Citizens were permitted to exchange only the paltry sum of 100,000 won ($40), though the limits were later raised in response to popular anger and even unrest. Citizens were directed to turn in the balance of their savings to the state; though many preferred to burn their old money rather than answer to the state for where the money came from. Hence, I have called the currency re-issue The Great Confiscation. Everywhere, markets shut down, shops closed, and traffic on the roads dropped off to almost nothing. In due course, the Great Confiscation has started to affect more than just the middle class that held savings in North Korean currency. The sudden end of this fragile market economy is now killing North Korea’s poor:

A mother and her daughter have starved to death in a rural area of Yangkang Province due to drastically reduced food circulation within North Korea since the November 30th redenomination, according to a report from an inside source. A source from Yangkang Province reported the tragedy to The Daily NK today, “In Gapsan, Ms. Shin, who made her living selling noodles, and her 11-year old daughter were found dead from starvation. [….]

On the evening of the 10th, the chairman of Ms. Shin’s people’s unit apparently visited her house to tell her of a meeting and found Ms. Shin and her eldest daughter dead, so she reported it to the office of the People’s Security Agency. Her second daughter, an eight-year old, is reportedly still alive. [Daily NK]

The local authorities — their relative compassion contrasts at times to the ruthlessness of the apparatchiks in Pyongyang — reacted by ordering additional food rations, but they have only meager rations to offer if they are to continue to distribute them through early summer, when the next harvests will begin. By spring, the North Korean people may have eaten up whatever food they had tucked away. Knowing full well that I’ve said something like this every single year I’ve been blogging, this could be a very hard year. And I suppose that’s been true for plenty of North Koreans every year. Unless the regime reverses course sharply, this could be much worse.